Sargon's Corner - Tik Tok, tick tock

Why is a major US retailer interested in buying an app launched in late 2018 that allows its millions of mostly young followers to create their own videos, lip-synching to a vast database of songs?

Walmart has joined Microsoft’s bid for the US operations of TikTok, valued at as much as US$30 billion. Basically, Walmart has been attempting to boost its digital footprint for years but, according to Fortune Magazine, its strategy of acquiring online businesses has been “muddled”. It bought online retailer Jet.com, but has since closed the site and has since acquired a stake in Indian online retailer Flipkart. Walmart's own online business made up about five percent of its sales last year – around $24.5 billion – and online revenue was expected to increase.

But Fortune quotes Brian Yarbrough, an analyst at investment firm Edward Jones, as saying: “Their digital strategy outside of Walmart.com has been all over the map.” The acquisition of Tiktok would help Walmart complete its planned transformation from that of a run-of-the-mill - albeit huge - retailer, into a more digital consumer platform. Its efforts to do so have helped the stock gain appeal in recent years, said analysts quoted by Fortune. And that would be enhanced if it succeeds in the bid in partnership with Microsoft. US tech giant Oracle is also reportedly considering a bid.

TikTok, which has said it has more than 100 million American users, has been given 90 days to sell its US arm, which the US president has alleged it shares data with Beijing – a claim TikTok denies. TikTok’s Chinese owner Byte Dance has announced that it will “strictly adhere to” new rules imposed by China over what technologies the country's companies can sell overseas, which could potentially block the sale.

Meanwhile, New Zealand companies have been undergoing a barrage of cyberattacks, with the NZ Stock Exchange being a particular focus of attention. These “distributed denial of service” (DDoS) attacks are all reported to have come from outside New Zealand.

The disruptions in New Zealand have come right in the middle of the company earnings season. The government has so far acknowledged of not having a clue as to who might be behind the cyberattacks, which have also reportedly impacted media companies and banks.

What is, however, perhaps worth noting is that the $135 billion NZ market is nearing a record high, despite the pressure on businesses caused by Covid-19. The rise of stock markets, as elsewhere in the world, of course, has as much to do with low global interest rates, as about economic confidence during a global pandemic.

The New Zealand Reserve Bank has now said that negative interest rates are being considered for the first time as it grapples with the economic impact of Covid-19. In its most recent Official Cash Rate (OCR) announcement, the Reserve Bank maintained the OCR at 0.25 percent but also raised the possibility of going into negative terrain. Both the ANZ and the ASB in recent reports have forecast the Reserve Bank will go ahead with cutting the OCR by early 2021. The impact on the stock market seems at least potentially likely to be upward.

Author: Sargon Elias is a multi-decade veteran of financial markets with experience spanning across the globe. He is currently CEO of Rockfort Markets.